Ownership Transition

A change in the ownership of a company has far-reaching consequences. It also has the potential for being dangerously disruptive to employees, customers, vendors, new owners, former owners, and other related parties. Over 60% of mergers and acquisitions fail to provide accretive value 36 months after the sale is completed.

On a personal level, the owners of privately held companies face unique challenges and problems in a transition of ownership. It is a one-time event with enormous consequences. There is no chance to "improve in the next fiscal year" or "make up for a mistake by changing a process." So the goal has to be to "get it right the first time."

Three Phases

The inTransition process encompasses three phases: analysis, the transaction itself, and post-transaction.

I. Analysis. The analysis phase is critical for success because it is foundational: if the company is not ready for a transition for whatever reason, a lot of time and resources can be wasted in "going through the motions." The first step, therefore, is clarifying the owner's vision for life after the transaction. Is there clarity (and therefore a commitment to making it happen) about the change? A second component is an assessment of the company itself: its value proposition, operational efficiencies, value in the marketplace, strength of the management team, capability of a next generation member, etc. Are there fundamental changes that need to be made to enhance value? Are there unspoken restraining forces that will impede a transition? Finally, what are the options for a transition (e.g., perhaps a sale to employees through an ESOP)?

II. Transaction. During a transaction, there are many moving parts. As carefully as a plan might be developed, there inevitably will be problems that can derail the transaction. In addition, how a transition is positioned and communicated to employees, customers, vendors and other stakeholders is crucial to long-term success.

III. Post transaction. Most transactions are not simple. They may include seller financing, contingent liabilities, escalation clauses, hold-backs, escrow accounts, performance targets, etc. Careful monitoring of the transition is most important at a time when the tendency is to do just the opposite. Navigating the post-transaction phase of a transition has its own special challenges.

For each of the three phases of the ownership transition, inTransition can help with proven processes as well as hands-on leadership, coaching and/or advice. We can also provide experts to advise on special tax considerations, legal issues, etc. that might spell the difference between a transition that is just satisfactory with one that maximizes the interests of all the stakeholders.

The Goal of Ownership Transition:

Maximize value to the stakeholders and ensure the long term success of the surviving organization.

Outcomes of Ownership Transition:

Confirmation of the owner's vision for life after the transition.
In-depth analysis of the current state of leadership, operations, employee morale, etc.
Exploration of options and assessment of feasibility.
Preparation of employees and other stakeholders for a transition.
Risk management of key components of the transition.
Oversight of the transaction itself.
Monitoring of events post-transaction.

Learn more:
Leadership Transition
Team Transition
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